Case(s): Tiffany & Co. v. Costco Wholesale Corp, 1:13-cv-01041 (SDNY)
Tiffany filed suit against Costco under the Lanham Act and New York law in February 2013, alleging that the retail chain was on the hook for trademark infringement, counterfeiting, and unfair business practices, among other causes of action, in connection with its sale of diamond engagement rings identified by point-of-sale signs containing the word “Tiffany.” The district court granted summary judgment for Tiffany and awarded Tiffany Costco’s trebled profits along with punitive damages and prejudgment interest, for a total of $21 million.
In response the Tiffany’s complaint, Costco argued that “Tiffany” is not a legally-protected trademark but instead, a generic term short for “Tiffany setting,” which describes a specific ring setting, and sought to have Tiffany’s federal registration for the mark invalidated.
District Court Decision
The lower court sided with Tiffany & Co. in a decision in September 2015, with Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York finding that Costco was liable for trademark infringement and counterfeiting for using signage bearing the word “Tiffany” to identify certain rings in its stores, and confusing consumers as a result. “Based on the record evidence, and despite [its] arguments to the contrary,” Judge Swain held that “no rational finder of fact could conclude that Costco acted in good faith in adopting the Tiffany mark.” With that in mind, she left it the toa jury to determine the damages that Costco should pay to the now-LVMH-owned Tiffany & Co. The jury awarded Tiffany a sum of $21 million.
At the same time, Judge Swain also dismissed Costco’s trademark invalidation counterclaim and its defenses, including its claim of fair use.
Second Circuit Appeal
The Second Circuit vacated in August 2020, holding that the district court’s determination was inappropriate at the summary judgment stage. The court held that Costco has raised a question of material fact as to its liability for trademark infringement and counterfeiting and, relatedly, its entitlement to present its fair use defense to a jury. Costco argued that it was using the word in a different, widely recognized sense to refer to a particular style of pronged diamond setting not exclusive to rings affiliated with Tiffany. Costco claimed that its use of the term was not likely to confuse consumers and that even if some degree of confusion was likely, it was entitled under the Lanham Act to the descriptive fair use of an otherwise protected mark. Accordingly, the court remanded for trial.
Writing for the Second Circuit, Judge Debra Ann Livingston held that it is reasonable that jurors could conclude that Costco’s use of the “Tiffany” name in connection with the sale of six-pronged diamond rings was not likely to confuse consumers or lead them to believe that Tiffany & Co. endorsed or was in some way connected to the sale of the rings. In vacating the lower court’s decision, the Second Circuit concluded that the evidence presented by Costco “has, when considered in the aggregate, created a genuine question as to the likelihood of customer confusion,” namely due to “the combination of (1) Costco’s evidence that ‘Tiffany’ is a broadly recognized term denoting a particular style of pronged ring setting and (2) its further indications, backed by prior pronouncements of this court, that purchasers of diamond engagement rings educate themselves so as to become discerning consumers.”
In other words, “A jury could reasonably conclude that consumers of diamond engagement rings would know or learn that ‘Tiffany’ describes a style of setting not unique to rings manufactured by Tiffany, and [could] recognize that Costco used the term only in that descriptive sense.” Moreover, the court held that “such consumers may also be distinctly capable of recognizing that Costco’s rings were not manufactured by Tiffany – based, for example, on their price, place of purchase, packaging, or paperwork – and consequently be particularly unlikely to be confused by any aspect of Costco’s point-of-sale signs.”
The Second Circuit also asserted that a jury could reasonably conclude that Costco did not use the term ‘Tiffany’ as a trademark.” After all, “Tiffany’s own evidence indicates that Costco typically identifies the trademark associated with its branded products as the first word on the product label,” while Costco provided evidence that by way of “over a century’s worth of documents [that] suggest that ‘Tiffany’ – both alone and in conjunction with words like ‘ring,’ ‘setting,’ ‘style,’ or ‘mounting’ – is widely understood to refer to a particular type of pronged diamond setting.”
In the same August 2020 decision, the 3-0 panel of judges for the Second Circuit also vacated the district court’s determination on Tiffany’s counterfeiting claim, holding that it was inappropriate of the lower court to hold Costco liable for trademark infringement at the summary judgment stage, and because counterfeiting is “merely an aggravated form of infringement,” it vacated the court’s judgment as to counterfeiting. The court also determined that liability for counterfeiting is inappropriate where the defendant can show “that it used a term identical to the registered mark otherwise than as a mark.” Costco had argued on appeal that its use of “Tiffany” was descriptive of the diamond setting – a diamond solitaire situated among six prongs – and thus, did not constitute use as a mark.
The matter was remanded to the district court for a new trial.
In July 2021, Tiffany & Co. and Costco settled the long-running lawsuit The settlement followed from a win for Costco in when the U.S. Court of Appeals for the Second Circuit vacated a lower court’s summary judgment decision – in which it held that Costco was liable to Tiffany & Co. for willful trademark infringement and counterfeiting – and remanded the case back to the district court for a new trial. In contrast with the trial court judge’s finding, the appeals court held that reasonable jurors could have found that “discriminating” Costco customers would not be confused about the source of the rings and that Costco’s use of the “Tiffany” name was not meant to mislead customers.